Greek bail-out

Is “Grexit” at hand?

Greece has only a couple of weeks left to convince its creditors

ON HIS visit to Athens this week, José Manuel Barroso, the head of the European Union (EU) Commission, brought a stern warning for Antonis Samaras, the new prime minister of a precarious right-left coalition government. Greece has only a couple of weeks left to convince its creditors that it can put economic reforms back on track. Should its latest plans for making €14.5 billion ($17.6 billion) of spending cuts over the coming two years be judged unrealistic, the next €31.2 billion loan tranche will again be held back.

If that happens, Greece would be unable to finish recapitalising its big banks. Without credit, the economy will seize up. Pensions and public-sector salaries would not be paid. A “Grexit” from the euro could occur within weeks. The worry for Greeks is that with Spain and Italy coming under attack in financial markets, some euro-zone members may be tempted to sacrifice Greece.

Two previous Athens governments have failed dismally since mid-2010 to implement reforms agreed on with the Commission and the IMF, thanks to widespread official corruption and a lack of political will. Mr Samaras opposed the first Greek bail-out while in opposition; he still wants, at some point, to renegotiate parts of the second.

Yannis Stournaras, the technocratic finance minister, has the difficult job of persuading Greece’s creditors that his government can do better than its predecessors. The troika of officials from the EU, IMF and European Central Bank were especially dismayed by a looming €3 billion gap in privatisation revenues this year, as well as by the lack of progress in cutting jobs in the public sector.

Just after the troika arrived, on July 25th, Mr Stournaras announced new bosses for the privatisation agency. And Antonis Manitakis, the public-administration minister, declared that five public-sector entities would be shut immediately and another 16 merged. Their 5,250 employees would retire or be transferred to other jobs. That is still far short of the 15,000 dismissals in 2012 agreed to by the previous government. Annual savings would be a modest €40m. Mr Manitakis promises another 180 mergers, with much bigger savings, within weeks. The civil service union is already threatening to strike. Will Mr Barroso and the troika think it is enough?